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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAVISH SOOD
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 01.01.2020 of the Commissioner of Income Tax (Exemptions) [hereinafter referred to as the CIT(E)] relevant to assessment year 2020-21.
At the outset, the Ld. Counsel of the assessee pointed out that there is a delay of 12 days in filing this appeal. The assessee received the order passed under section 12AA(1)(b)(ii) on 03.10.2020, however, the appeal was filed on 14.12.2020. The Ld. Counsel of the assessee submitted that due to outbreak of the covid 19 pandemic the office staff of the assessee was not coming and which has resulted into the late filing of the appeal
2 ITA No.2004/M/2020 M/s. Kutchi Lohana Youth Forum by 12 days. The Ld. A.R. therefore submitted that the delay may kindly be condoned. The ld .D.R. on the other hand, submitted that appeal is delayed by 12 days and should not be entertained for adjudication. Having heard both the parties, we are of the view that in the pandemic period the Jurisdictional High Court had extended the limitation in filing of the appeals from time to time. We therefore, inclined to condone the delay in the interest of justice and fairplay and appeal is admitted for adjudication.
The assessee has raised the following grounds:
“1. The Learned Commissioner of Income Tax has/erred in rejecting the application under section 12AA(1)(b)(ii) of the Act without considering the fact that for grant of registration u/s 12AA(1)(b)(ii) of the Act, the Commissioner has to satisfy himself about the objects of the trust or institution and genuineness of its activities. 2. The Learned Commissioner of Income Tax has erred in not appreciating the fact that the objects and activities of the appellant trust are genuine in nature, hence, the application has been rejected on vague basis.” 4. The only issue raised by the assessee in the grounds of appeal is against the order of Ld. CIT(E) rejecting the application under section 12AA(1)(b)(ii) of the Act.
The facts in brief are that the assessee filed application in form 10A on 06.03.2020 for approval under section 12AA of the Act. The Ld. CIT(E) on the basis of financial statement uploaded by the AO on ITBA portal observed that the assessee has an opening balance of Rs.16.62 lakh in the financial statement for F.Y. 2015-16 and thereafter addition of Rs.21.07 lakhs, Rs.13.33 lakhs and Rs.14.53 lakhs were made under the head “Other Earmarked Funds” during 2016-17, 2017-18 & 2018-19 respectively thereby directly crediting the reserve account without routing the income through income and expenditure account. The Ld. CIT(E) observed that the assessee has not paid
3 ITA No.2004/M/2020 M/s. Kutchi Lohana Youth Forum any taxes on the said income and the same was claimed as exempt under section 11 of the Act. The ld CIT( E ) finally rejected the registration to the trust by passing order dated 01.10.2020 under section 12AA(1)(b)(ii) of the Act by observing and holding as under: “3.3 Before the period of grant of registration, all voluntary contributions - including the ones with specific direction that they shall form part of the corpus - is income of a charitable, religious or charitable cum religious trust. Hence, after taking donations under the head "Other Earmarked Funds" as income, if the applicant becomes liable to pay tax, then the registration u/s 12AA cannot be granted unless the tax is paid.
3.4 Registration u/s 12AA of the IT Act is pre-condition to claim exemption u/s 11(1)(d) of the IT Act as distinguished from the present case. Therefore, the applicant trust has escaped amount of donation from taxation by not showing amount of said donations in the total income for the FY's 2015-16, 2016-17, 2017- 18 and 2018-19. No proper explanation to explain the discrepancy is submitted. These facts of the case prima facie indicate that the applicant trust indulge in such activities from which huge receipt has been generated and thus charitable/religious object of trust is not proved.
Considering the above facts, I am not satisfied about the genuineness of activities of the trust / institution and hence, the request for grant of registration u/s 12AA of the Income-tax Act, 1961 cannot be accepted. 5. In view of the above, I hereby reject the application for grant of registration u/s 12AA(1)(b)(ii) of the Income Tax Act, 1961.”
The Ld. A.R. submitted before the Bench that the sole reason assigned by Ld. CIT(E) for rejecting the registration of the trust is that the income has not been routed through income and expenditure account and directly credited to the reserve account in 3 years namely 2016-17, 2017-18 & 2018-19 as stated hereinabove and the appellant assessee has not paid any taxes on the said income. The Ld. A.R. submitted that at the time of registration, the Ld. CIT(E) has to satisfy himself about the genuineness of the trust, activities of the trust and compliances under various laws in vogue. The Ld. A.R. submitted that the Ld. CIT(E) is duty bound to consider whether
4 ITA No.2004/M/2020 M/s. Kutchi Lohana Youth Forum the objectives of the trust are generally charitable in nature and whether activities of the trust proposed to be carried out by the trust are genuine in the sense that they are in line with the aims and objective of the trust. The Ld. A.R. submitted that assessee has duly submitted the list of activities carried out which were in line with the aims and objectives of the trust and also furnished details of expenditure incurred towards the activities of the trust. The Ld. A.R. pointed out that the main activity of the trust is education which was carried on by the trust after its formation. The Ld. A.R. also submitted that the Ld. CIT(E) has not doubted the aims and objectives of the trust and its activities of the trust post formation. The Ld. A.R. vehemently submitted that the reasons given by the Ld. CIT(E) for rejecting the trust are not valid reasons for rejecting the registration as the utilization of income is not the criteria for rejecting the registration of the trust. The Ld. A.R. also submitted that the Ld. CIT(E) has rejected the registration of the trust on the presumption that no tax was paid in earlier years by disregarding the fact that the income as noted by the Ld. CIT(E) in three years were duly offered to tax by referring to the computation of income filed on page No.16, 27 & 39. Finally, the Ld. A.R submitted that the order of Ld. CIT(E) is wrong and against the facts of the case and may be set aside. In defence of his arguments, the Ld. A.R. relied on the following decisions:
CIT vs. Babu Ram Education Society (2018) 96 taxmann.com 607 (SC) 2. Ananda Social & Educational Trust vs. CIT (2020) 114 taxmann.com 693(SC) 3. Shri Dhar Sabha Vaishno Devi vs. CIT(E) (ITAT Amritsar) 4. CIT vs. Divine Shiksha Samiti (2020) 121 taxmann.com 175 (Madhya Pradesh)
5 ITA No.2004/M/2020 M/s. Kutchi Lohana Youth Forum
The Ld. D.R., on the other hand, relied heavily on the order of the Ld. CIT(E) by submitting that when an application is moved for registration of trust with various documents such as financial statements and trust deed etc. The Ld. D.R. though admitted that the Ld. CIT(E) has not doubted the genuineness of the activities of the trust or its aims and objectives but certainly when he came across with the income for the preceding 3 years being directed credited to reserve account without routing through the income and expenditure account, ld CIT(E ) came to a conclusion that the trust did not fulfil the necessary conditions precedents to grant of registration. The Ld. CIT(E) has even found on the basis of the documents furnished by the assesse appellant that it has not paid taxes on the said income. Therefore, the Ld. D.R. relied heavily on the order of Ld. CIT(E) and prayed that the appeal of the assessee may kindly be dismissed.
After hearing the submissions of both the parties and perusing the material on record, we find that in this case the trust has been constituted for carrying on various aims and objectives and the primary activity of the trust was educational activity. We note that accordingly, the trust carried on its educational activities. During the course of proceedings before the Ld. CIT(E), the Ld. CIT(E) observed that assessee has not paid taxes on the income generated during F.Y. 2015-16, 2017- 18 & 2018-19 which has escaped assessment and solely on this ground the registration of the trust was rejected. Thus Ld. CIT(E) has formed an opinion about the non granting of registration on the basis of income of 3 years which according to
6 ITA No.2004/M/2020 M/s. Kutchi Lohana Youth Forum the Ld. CIT(E) have escaped assessment whereas as a matter of fact on the basis of records before us we observe that assessee has duly offered the income to tax. Moreover, the issue of escapement of income is not relevant at the stage of granting the registration to the trust but it is only the genuineness of the objectives of the trust and its activities which are to be examined by the Ld. CIT(E) at the time of granting of its registration. The provisions of section 12AA of the Act clearly lay down the procedure to be followed by the Ld. CIT(E) while granting registration which for the sake of better understanding are reproduced as under: “12AA. (1) The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) or clause (ab) of sub-section (1) of section 12A, shall— (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about,— (i) the genuineness of activities of the trust or institution; and (ii) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects, and may also make such inquiries as he may deem necessary in this behalf; and] (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities 55[as required under sub-clause (i) of clause (a) and compliance of the requirements under sub-clause (ii) of the said clause], he— (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant :”
Thus it is clear from the above that the scope of enquiry is confined to verification of objectives of the trust, genuineness of the activities and compliance with other related laws for the time being in force and not beyond that. The case of the assessee finds support from the following decision as cited by the Ld. A.R. In the case of CIT vs. Divine Shiksha Samiti (supra). The Hon’ble High Court has held that section 12AA of the Act
7 ITA No.2004/M/2020 M/s. Kutchi Lohana Youth Forum nowhere provides that CIT(E) while considering the application for registration is also required to be examined whether income derived by the trust is being spent for charitable purposes or trust is earning profit. The Hon’ble High Court has further held that where there is no doubt about the genuineness of objects of the society for grant of registration under section 12AA of the Act, the Tribunal was correct in directing the CIT(E) to grant registration to the society under section 12AA irrespective of the finding of the CIT(E) that there was diversion of income of the society for providing undue benefits to its office bearer and thus the society existed for the purpose of profit for office bearer and not for charitable trust. Similar ratio has been laid down in the other decisions as cited by above by the Ld. A.R. After considering the facts of the case in the light of the decisions as discussed hereinabove, we are of the considered view that registration has wrongly been rejected by Ld. CIT(E). Accordingly, we set aside the order of Ld. CIT(E) and direct him to grant registration under section 12AA(1)(b)(ii) of the Act.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 29.10.2021.
Sd/- Sd/- (Ravish Sood) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 29.10.2021. * Kishore, Sr. P.S.
Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai
8 ITA No.2004/M/2020 M/s. Kutchi Lohana Youth Forum The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order
Dy/Asstt. Registrar, ITAT, Mumbai.